Industry growth 'near standstill'

Growth in Britain's manufacturing industry ground almost to a halt last month as companies continued struggling under the strength of the pound against the euro. As the Bank of England's monetary policy committee prepared for its two-day meeting on interest rates this week, the June Purchasing Managers Index on manufacturing fell from 50.8 to 50.2 - a fraction away from the 50-point stagnation mark and its lowest since last May.

The figures came hours after reports detailed a leaked memo by the Government official in charge of inward investment warning manufacturing faced meltdown unless Prime Minister Tony Blair declared British membership of the euro inevitable.

Hit by weak growth of output and new orders, companies expected no significant expansion throughout the second quarter of 2000. Andrew Milligan, director of economic research at Morley Fund Management, said: 'Clearly, manufacturing is experiencing a modest recession that will continue into the summer months.'

While such 'old-economy' companies make up only about a quarter of Britain's total production, the figures came as the latest in a line of economic data likely to persuade hawks on the MPC to vote on Thursday for no change to the current 6% base rate. High Street spending, employment and the housing market have all slowed, suggesting Britain's economy is making a soft landing.

Although sterling weakened against the European currency from highs earlier in the year, the PMI figures, collated by the Chartered Institute of Purchasing and Supply, showed the pound's sustained strength was wearing down British exporters and encouraging cheaper imports into Britain from the euro-zone. But they also showed signs of continuing inflationary pressure, as high oil prices and the weakening of the pound against the dollar forced companies to raise the cost of their goods.

Employment levels continued falling as companies were forced to lay off staff and cut costs. A total of 15% of respondents to the survey reported a decline in workforce sizes.

In stark contrast, June manufacturing PMI figures for the euro-zone showed those economies enjoying robust health. The European version of the index registered continued strong growth of 59.5 points among euro members - a shade lower than expected but the third highest in the survey's history. The euro gained in thin trading, coming close to the psychologically important 63p mark at 62.75p.

Meanwhile, a Nationwide Building Society survey found that house prices rose in May but at a slower pace than during the first quarter of the year.